Corporate Sustainability Reporting - Essay Example

?Corporate Sustainability Seporting Provide a summary of the purpose of Corporate Sustainability Reporting by referring to the Global Reporting Initiative’s Sustainability Reporting Framework (G3.1) The Sustainability Reporting Program comprises a review of current approaches to sustainability reporting by industry and business. The purpose of sustainable development of the company is to meet the needs and requirements of the present without compromising the capability of future generations to meet their own needs and requirements. One of the key challenges of sustainable development of a company is that it demands innovative and new choices and methods of thinking. At the same time, as developments in technology and knowledge are contributing to financial development, they also have the potential to assist resolving the threats and risks to the sustainability of environment, social relations and economies. Sustainability reporting is the kind of practice of disclosing, measuring, and being accountable to external and internal stakeholders for organizational performance towards the objective of sustainable development. A sustainability report should offer a reasonable and balanced representation of the sustainability performance of a reporting company consisting of both negative and positive contributions. The guidelines of Sustainability Reporting comprise principles for defining content of report and guaranteeing the quality of reported information. It also consists of standard disclosures made up of indicators of the performance and other items of the disclosure, in addition to guidance on specific technical and technological topics in reporting. A company’s own sustainability and business policy offers the circumstance in which performance is discussed. The relationship between the organizational strategy and sustainability should be made clear, as should the circumstance in which performance is reported. The boundary of the Sustainability Report must consist of the entities over which the reporting company exercises control or considerable influence both in and through its relations with diverse entities upstream and downstream. Indicators of the sustainable performance are organized by environmental, economic, and social categories. A sustainability report also refers to a single, combined disclosure that offers a balanced and reasonable presentation of performance over a fixed period of time. Stakeholders must be capable to directly access all of the information in the report from a single location, such as a GRI content index. The GRI Reporting Structure is planned to provide a normally accepted structure for reporting on a company’s environmental, economic and social performance. The structure includes the guidelines of the Sustainability Reporting, Technical Protocols, the Indicator Protocols, and the Sector Supplements. Organizational operations connected to operating, entering, and exiting can have numerous negative impacts on local communities. Indicators in the GRI structure, such as economic data or environmental emissions, will offer an overall idea of negative and positive impacts, but may not be capable to present them in relation to local communities. Sustainability reporting must consider every material sustainability topics that are appropriate in understanding how a company can create, erode or preserve value over time. Environmental, economic, and social impacts can turn out to be significant over an extended time period. Reports should be capable to reflect both long-term as well as short-term topics and foreseeable longer-term subjects. A sustainability report thus covers a wider range of subjects than constitutional and statutory reporting needs, consisting of, but not limited to: • “Impacts on stakeholder groups that are of high significance to them • Opportunities to contribute to broader sustainability objectives • Opportunities to adapt to planned changes in policies and regulatory frameworks” (RG Sustainability Reporting Guidelines, 2000). Once a sustainability report has been compiled and presented, it is vitally significant that the reporting organizations reviews and evaluate it. In compiling a report it is vital to follow the three steps of “1. Identification, 2. Prioritization and 3. Validation” (RG Sustainability Reporting Guidelines, 2000). The Content of the Report and Materiality Protocol are planned to help business establishment optimize the value and quality of their sustainability reporting. With an apparent and clear idea of what is concerned and involved in defining content of the report, organizations are capable to focus sustainability reports on material sustainability subjects. Recognizing and prioritizing material subjects help companies to recognize opportunities and foresee risks, and facilitates greater understanding of their ability to make, conserve or erode environmental, economic, and social value for itself, its society and stakeholders at large. 2. Critique Stakeholder Theory and Legitimacy Theory that you have learnt in this subject (See Deegan, 2009, Financial Accounting Theory, pp. 318-378) and the literature about the empirical application of the two theories published in academic journals (see Referencing and Style Item 2.2 on page 2) in explaining the motivators for corporate voluntary sustainability reporting practice. Stakeholder theory is a concept in business ethics and organizational management that deals with ethics and values in running an organization. In the view point of the shareholder, the shareholders or stockholders are the owners of the company, and the organization has an obligatory fiduciary responsibility to put their requirements first and raise value for them. But the stakeholder theory claims that there are other parties included, such as the political groups, governmental bodies, trade associations, societies, trade unions, financiers, employees, suppliers, and customers. In some cases, the parties include even competitors as stakeholders whose position is resultant from their capability to influence the firm and its other ethically legal stakeholders. The stakeholder theory has been criticized on the premise that the wellbeing of various stakeholders comes into conflict with one another. The stakeholder theory deals with the basis for encouraging the interests of the stakeholder even in the lack of any clear gain. Various researchers and their studies are influenced by the question of who is the stakeholder. However, most of them have different interests concerning the question and they come to the conclusion depending on their specific outlook. Legitimacy Theory explains that businesses are governed by the social agreement in which the firms carry out various operations in return for attaining its purpose and other rewards, and this eventually ensures its sustained operations. Deegan suggests a rationally comprehensive summary of a number of researches that have make use of legitimacy theory. The theory is applied “to explain systematic changes in corporate annual report environmental disclosure policies around the time of proven environmental prosecutions (which were deemed to be legitimacy threatening events)” (Hoque, 2006). Legitimacy Theory has been used to clarify how the social revelation is integrated within the annual reports of companies in chosen industries altered during major social events or failure that could be openly associated to a particular industry. On the basis of the empirical work, it is apparent that both the legitimacy and stakeholder theories are useful in understanding corporate responsiveness to social issues. As per the stakeholder theory, managers will react to the difficulties of the most powerful stakeholders. As stakeholder groups increase and misuse power, managerial actions will modify the focus. Most of the empirical studies of the stakeholder theory are found to be a useful support for the managerial applications. “Like legitimacy theory, it is considered that the expectations of the various stakeholder groups will impact on the operating and disclosure policies of the organization. The organization will not respond to all stakeholders equally, but rather, will respond to those that are deemed to be powerful” (Belal, 2008). As per the legitimacy theory, the concerns of the management actions of a corporation will be determined by the survival of legitimacy differences. Management will implement strategies, depending on which the utmost opportunities of success are achieved at lesser cost. This theory appears to have descriptive legality in terms of justifying why managers are pushed into action. 3. Economic, environmental and social aspects of PepsiCo and Wal-Mart stores for the reporting year 2011. PepsiCo: PepsiCo is the world's leading consumer products firm which commands an enviable position in the food and beverage industry. The company seeks to create financial rewards to investors by providing chances for development to the workers, business associates and communities in which it operates. “PepsiCo has adopted strict corporate standards that govern our operations and ensures accountability for our actions. Learn more about the processes and policies guiding our business” (Corporate Governance, 2011). PepsiCo's environmental rule is a report of the company's obligation to being an environmentally dependable business citizen in every aspect of the business. The rule expresses values that form the basis of the obligation to environmental stewardship at all levels in PepsiCo. This contains the commitment to implement and protect the management system of environment; manage and identify environmental risk; apply auditing processes and formal governance to the ecological plans and methods to confirm compliance with rules and business standards. The rule also expresses the obligation to keep natural resources and decrease waste, and to share environmental practices to reduce the ecological influences of business. PepsiCo is planning to open a new global project to support sustainable agriculture as part of an effort to help the company put a financial value on the social and environmental influences of their supply chains. The economic, social and environmental study is planned to help PepsiCo calculate the social return on investments and put a reasonable cost on environmental and local financial influences connected with its supply chain. PepsiCo is an approximate $66 billion international powerhouse focused on two businesses with attractive development, margins and profits, global beverages and global snacks. In 2011, the company delivered a core net revenue development of 14%. Nestle in the two businesses is the international nutrition business, which in 2011 generated a net profit of about 9%, excluding acquisitions. Wal-Mart Stores: Wal-Mart Stores is a US international retailer corporation that runs chains of large warehouse stores and discount department stores. It is the world's third biggest public company, consistent with the Fortune Global 500 list in 2012. It is also the largest private company in the world with more than 2 million workers, and is the biggest retailer in the world. Wal-Mart remains a family-owned business as the firm is restricted within the family of Walton, who owns a 48 percent share in Wal-Mart. Additionally, it is one of the world's most valuable business. “Wal-Mart delivered solid financial performance for fiscal year 2011. We increased net sales by 3.4 percent to $419 billion and operating income by 6.4 percent to more than $25 billion” (Building the Next Generation Wal-Mart, 2011). The reduced earnings per share from continuing processes rose 12% to $4.18 per share. And the company continues to distribute a stable return on investment of more than 19%. The company “Closed out the year with almost $11 billion in free cash flow. And returned a record $19.2 billion to shareholders through dividends and share repurchases” (Building the Next Generation Wal-Mart, 2011). The chain saw foot traffic decline, and Wal-Mart tried to bring back customers troubled by gas prices and high unemployment. Wal-Mart also began starting 40 smaller Wal-Mart Express stores in urban and rural areas. In 2011, Wal-Mart US provided strong expense leverage and operating income. Net sales increased to about $260 billion. Operating income exceeded almost 3.1 %, reaching $20 billion. The company offers a large number of services of customer shopping to millions of consumers through over 3,800 stores and more than 617 million square feet of selling space. Beyond sales, the chain also is pestered with the problem of unstable public image. In the fiscal year of 2011, the US Supreme Court instituted an inequity lawsuit charging the dealer of preferring men more than women in promotions and pay. Whereas executives might have heaved a sigh of relief, Wal-Mart had undergone another blow when U.S. lawmakers opened a study in 2012 accusations of bribery at the chain’s Mexican associate. Such problems may affect the sustainability of the company in the long run. 4. Discuss how legitimacy is managed through reporting by the two companies (in Item 3 above) from the perspectives of Stakeholder Theory and Legitimacy Theory In order to generate a new positive organization environment, PepsiCo in 2011 worked positively with further shareholders at the same time as investing in sustainability as a means for the growth. “5.6 billion dollars” was returned to the stakeholders of PepsiCo through share repurchases and dividends. PepsiCo always target on the creation of value among the share holders and they achieve this by sustaining or raising share values in the main markets, determinedly following sustainable, lucrative growth, thoroughly analyzing capital investments and unrelentingly returning cash to the stakeholders during the repurchase of both the dividends and share. In this manner, the company expects to achieve the topmost position of consumer packaged products companies as calculated by entire shareholder return. The company acts within the laws and standards set by the government; otherwise it may have adverse effect on their goodwill and reputation. So they effectively utilize the agricultural materials, energy, packaging, waste management, especially in the context of increasing demand for water in different parts of the world Wal-Mart always emphasizes their organizational slogan “Always low prices- Always” (Case Study: How to Exploit Wal-Mart’s Weaknesses, 2005). Even if this business strategy of Wal-Mart may seem to be very alluring in a view point of a consumer, they have faced considerable criticism for the way of its operation.  “Wal-Mart is focusing its business strategy only within the context of the traditional stakeholder theory – maximizing profits” (The Show Must Go on: The Case of Mike Daisey and the Agony and the Ecstasy of Steve Jobs, 2012). Wal-Mart has seemed to support only a particular group of stakeholders over several years that is its consumers.  They completely ignore the rest groups of stakeholders such as employees and other businesses, and have positioned so much prominence on rewarding one group of shareholders. The mission statement of Wal-Mart is to provide same things to the poor people that the rich people purchase. The major portion of employees of Wal-Mart are ordinary people and they should not make use of its employees as a way for increasing their shareholder’s revenues, as all humans have their worth in the society. It is improper and unjust to treat a particular group of people as a preferred section than others.  Even though Wal-Mart does not provide outstanding benefits to its employees, it still continued to perform as a legitimate business working in a capitalistic society successfully. Wal-Mart maintains the main fiduciary obligation to satisfy its stakeholders. It has a direct accountability towards the primary shareholders in a free market than its employees. Wal-Mart maintains the fiduciary obligations to its shareholders by not raising its employee wages and instead, they take the total of money and give it back to the stock and shareholders such as suppliers and customers. Wal-Mart generates happiness for the equal amount of investment done by the investors in the company. Ethics of Wal-Mart is regarding the effects of a deed and the effect of company’s actions generates a lot of good for those who are the chief stockholders of the business. In order to be successful in the competitive environment, Wal-Mart should expand its fiduciary obligation by including its employees so as to build company spirit, trust, and harmony. A good fiduciary relationship with its shareholders helps the company as well as the shareholders to develop, so the employee morale can be developed as they are innovation driven. References Belal, A. R. (2008). Corporate Social Responsibly Reporting in Developing Countries, the Case of Bangladesh. ASHGATE. [Online] Available at [Accessed on 18 September 2012]. Building the Next Generation Wal-Mart. (2011). Walmart. [Online] Available at [Accessed on 18 September 2012]. Case Study: How to Exploit Wal-Mart’s Weaknesses. (2005). Zenith Management Consulting. [Online] Available at [Accessed on 18 September 2012]. Corporate Governance. (2011). PEPSICO. [Online] Available at [Accessed on 18 September 2012]. Hoque, Z. (2006). Methodological Issue in Accounting Research: Theories and Method. Spiramus. [Online] Available at [Accessed on 18 September 2012]. RG Sustainability Reporting Guidelines. (2000). Global Reporting Initiative. [Online] Available at [Accessed on 18 September 2012]. The Show Must Go On: The Case of Mike Daisey and The Agony and the Ecstasy of Steve Jobs. (2012). Business Government Society 2. [Online] Available at [Accessed on 18 September 2012]. Read More